your situation is quite confusing. I don't think any of us really know what you did or didn't do or even what type of tax entity we are dealing with. see a tax professional to get things cleaned up.
if those you hired were independent contractors, there is no reason why they couldn't get their refunds even if you didn't issue them 1099's. they are required if you paid over $600 to either or both of them but the problem would be non-filing at your end and shouldn't block their refunds. if they were employees, w-2's are required. did you file copies with the Social Security Adm along with form W-3. you'll also have issues if there was state withholding. forms would need to be filed with the state. in addition, you need to get educated as to record keeping and filing requirements for your business. for employees you would also likely have to file unemployment compensation returns federal and state. you probably need workmen's compensation insurance - failure to have it when required can result in fines in the $000's.
perhaps the problem is that your employees don't know how to file.
